Comment of French VAT Exemption Row

Chris Allix, director and founder of Dominion Marine Corporate Services, comments on the recent referral of France to the European Court of Justice and the implications for the yacht industry.

Chris gives his opinion below:

Chris Allix“There has been a recent spate of articles concerning the French zero rating of commercially registered charter yachts, and in particular their definition of the “high seas”.

In fact, the European Commission has referred France to the European Court of Justice because of the exemption given by the French Authorities to the charter yacht industry.

MYBA recently issued a note to their members, underlining that this was referred by politicians and it is now up to the European Court to establish whether there is even a case to answer.

If there is, they will go on to decide if the French are right or wrong.

In my opinion, because there is no agreed, legal definition for “high seas”, the Court may take this opportunity to provide one.

The general zero rating rules apply to all commercial cargo ships and passenger vessels carrying passengers for reward on the “high seas”.

Under Article 150 paragraph 2 of the EU Directive 2006/112 the French, via Art 262 of their tax code, have extended this to commercially registered yachts with a permanent crew chartering for reward on the “high seas”.”

Chris goes on to consider the implications of this for the yachting industry:

“If the Court rules in favour of the Commissioners, this could have far reaching implications well beyond yachting. As MYBA stated, cargo ships plying their trade between one EU port and another would lose their VAT exemption, as would cruise ships visiting different EU cities (without visiting a non EU city in between).

From the yachting industry’s point of view the question is, can the charter industry afford to absorb an additional 20% on both the charter income and expenses with the current economic climate?

It has been suggested that charter companies could register for VAT in the countries in which they sail but this will incur additional costs. Another suggestion is for yachts to be imported through member states, pay the VAT on the yacht’s value and then reclaim the tax.

Unfortunately, many non EU owners do not trust governments to repay large sums of tax in a timely manner.

I believe that this could lead to a large number of owners deciding not to bring their yacht into Europe for charter,  thus considerably reducing revenue, especially in the Mediterranean states.

The implications of this could far outweigh any additional taxes collected. We have already seen examples of this in the past:  Spain with their Matriculation Tax and the recent tourist tax in Sardinia.

I believe that the EU, rather than attacking the French Article 262, should adopt this zero rating rule across the board, thus increasing charter business in the EU, especially in the Mediterranean area. However, if the Commissioners succeed in their legal actions against France, the only countries to benefit will be those outside the EU such as Turkey, Croatia and Montenegro.”